Buying your first home can be an exciting adventure. But if you’ve learned everything you know about owning a home from reality home improvement shows, your expectations about how far your budget will stretch may not align with the reality of the housing market where you want to live. Before you start searching for the house of your dreams, take some time to run the numbers with a Licensed Mortgage Professional to ensure you’re prepared for the reality of owning a home. Here are four financial implications to consider.
1. The lender determines your maximum loan amount. If you get pre-qualified before you start looking at houses, your lender will tell you the maximum amount you can borrow based on your income, assets, debt payments and credit history. You don’t have to borrow the maximum, but you can’t borrow more than that. The amount you borrow should one you’re comfortable with based on your other financial obligations and the type of lifestyle you want. Keep in mind lenders don’t consider daily expenses such as food, transportation, utilities and entertainment when calculating how much you can borrow.
2. Your credit impacts the cost of your loan. If you’ve built a solid credit history by paying your bills on time, applying for credit sparingly and keeping your credit utilization low, you probably won’t have trouble qualifying for a mortgage at a decent rate. But if your credit history has a few dings in it, you may want to improve it before buying a home because your credit score influences your interest rate. Typically, people with high credit scores qualify for the lowest rates. A lower rate could save you thousands of dollars in interest charges over the life of your loan.
3. Budget accordingly. If you’re planning to buy a home, you’ve probably thought about your monthly mortgage payments, property taxes and PMI, if applicable. But what about maintenance, furniture, utilities and landscaping? Be sure to include those costs and any others you’ll be responsible for in your budget.
4. Location influences price. The national median sale price of a home in the United States is an often-used statistic. But if you want to live in an area where housing prices are well above or below (lucky you!) the median, it’s not particularly useful. Housing prices are market-specific, and whether you can afford your dream home depends, in large part, on location. If you want to live in an area where housing costs are high, you may have to sacrifice part of your wish list for your desired location.
To find out how much you can afford in the neighborhood of your dreams, contact an HFG Licensed Mortgage Professional near you today to get pre-qualified.